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Understanding Car Insurance

Car insurance protects you from financial liability in incidents involving your vehicle. It can help save your from costs involved with bodily injury (medical costs) and property damage, to both you and your property and other people involved in the accident if you’re at fault. Car insurance is required in most states and it is illegal to operate a car without it.

What Car Insurance Covers

In general, car insurance covers damage, vandalism, and theft of your vehicle. But what any specific auto insurance policy will cover depends on the coverage type(s) you have. Each car insurance policy is made up of at least one of the following:

Liability insurance. Doesn’t cover your vehicle, but covers damage you cause to others in an accident. It is made up of bodily injury (BI) and property damage (PD).

Personal injury protection (PIP). PIP covers medical expenses, lost wages, and other damages. It’s required in “no-fault” states because it pays regardless of legal liability.

Uninsured/underinsured motorist insurance. If you’re in an accident with an uninsured driver and they’re at fault, uninsured motorist insurance means you’ll still be covered. Like liability insurance, BI and PD are covered here, but for you instead of the other driver.

No-fault states are states in which drivers can file a claim with their insurer regardless of which driver is at fault.

What Car Insurance Doesn't Cover

Car insurance doesn’t cover the cost of regular maintenance for your vehicle, like getting an oil change or new tires. It also won’t cover the cost of belongings in the car; if your golf clubs are stolen from your back seat, you’ll need to rely on homeowners or renters insurance. Items installed in the car (like the radio) are covered.

Is Car Insurance Legally Required?

Car insurance is required in every state (and Washington DC) with three exceptions: New Hampshire, Missouri (uninsured drivers must submit “proof of financial responsibility” to the Department of Revenue), and Virginia (where drivers must pay a $500 fee to drive uninsured). These states still require at-fault drivers to pay for any bodily injury and property damage.

What changes between each state’s auto insurance requirements is how much of each type of coverage is needed. Both BI and PD liability coverage is required in almost every state, and some states require PIP and uninsured motorist coverage as well. Each state also has its own minimum liability limits, presented as bodily injury limit for a single person, bodily injury limit on the entire accident, and property damage limit.

Average Cost of Car Insurance

In 2014, the average annual cost for car insurance was around $900. However, what an individual will pay depends on a number of factors beyond just the coverage amount, including:

Personal details (Age, gender, marital status)

Driving record

Place of residence

Type of car

Average driving distance

You may have heard that men pay more than women for car insurance. This is true, because statistically men are more likely to engage in risky driving practices like speeding and driving under the influence, which results in more accidents. Massachusetts, Hawaii, and North Carolina do not allow gender to play a role in auto insurance rates, so drivers in those states don’t have to worry.

Age is one of the biggest factors in car insurance rates, and rates begin to go down every time you renew your policy, with a bigger drop happening at around 25 years old.

An easy way to lower your auto insurance cost is by looking for a number of car insurance discounts. Affinity group members, students, and safe drivers can all get discounts. People who have newer vehicles and bundle their auto insurance with other insurance types (like their homeowners insurance) can also get discounts from most carriers.

How Car Insurance Works

Some people are hesitant to file a car insurance claim, fearing that their premiums will increase even if they aren’t at fault. However, this isn’t necessarily true, and an insurance company will look at the damage involved and who is responsible for the accident before deciding whether or not a claim results in a rate increase. If you find yourself in an auto accident, whether it’s a fender bender or your car is totalled, exchange insurance information with any involved parties. Even damage that looks cosmetic may have comprehensive damage that you can’t see, so you should file a claim.

Is Car Insurance Worth It?

Besides being legally required in most every state, auto insurance is an incredibly important part of your financial safety net. The average car insurance claim in 2013 was over $15,000 for bodily injury and over $3,200 for property damage. Car insurance is there to cover medical bills, vehicle repair or replacement, and keeps you off the hook for injury and damage liability for others. Your premiums will go up if you cause an accident, but that’s better than the alternative.

Yes, we have to include some legalese down here. Read it larger on our legal page. Policygenius Inc. (“PolicyGenius”) is a licensed independent insurance broker. PolicyGenius does not underwrite any insurance policy described on this website. The information provided on this site has been developed by PolicyGenius for general informational and educational purposes. We do our best efforts to ensure that this information is up-to-date and accurate. Any insurance policy premium quotes or ranges displayed are non-binding. The final insurance policy premium for any policy is determined by the underwriting insurance company following application. Savings are estimated by comparing the highest and lowest price for a shopper in a given health class. For example: for a 30-year old non-smoker male in South Carolina with excellent health and a preferred plus health class, comparing quotes for a $500,000, 20-year term life policy, the price difference between the lowest and highest quotes is 60%. For that same shopper in New York, the price difference is 40%. Rates are subject to change and are valid as of 2/17/17.